Three FTSE 100 dividend stocks I’d buy for my ISA with £5k

These FTSE 100 (INDEXFTSE: UKX) income stocks with market-beating dividends are great ISA buys, says Rupert Hargreaves.

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If you’re looking for high dividend stocks to include in your Stocks and Shares ISA, the FTSE 100 is a great place to start. 

There’s a whole range of companies in the UK’s leading blue-chip index that offer dividend yields of 4% or more. Today, I’m going to highlight just three of these income champions.

Growth concerns

Investors have been avoiding ITV (LSE: ITV) recently due to concerns about the company’s future growth potential. Analysts are worried that the business will struggle to compete with global streaming giants such as Netflix and, as a result, advertisers will go elsewhere.

However, so far, the impact on the company has been limited. Last year, viewing figures for ITV programmes across all devices rose 3%. 

What’s more, management is planning to push back by launching a new streaming service with the BBC. Called BritBox, it will complement its existing ad-free Hub+ subscription service, which has already attracted 265,000 subscribers.

All of the above leads me to conclude ITV’s dividend yield of 6.5% looks safe for the time being. As well as this market-beating distribution, the stock also trades at a highly attractive forward P/E of just 8.8.

Shareholder rewards

My second FTSE 100 dividend pick is fashion retailer Next (LSE: NXT). Like ITV, shares in Next have suffered due to concerns about the company’s growth potential over the past few years.

The UK high street is suffering from the rise of online retail, and Next isn’t immune. Sales at the company’s physical stores are declining, but online is picking up the slack.

For the year to the end of January 2019, while physical store sales slumped 7.9%, online increased 14.7%, helping push overall sales up 2.5% for the year. Online sales now make up around 50% of the sales mix.

Rising online sales combined with the company’s share buyback programme will, analysts predict, help earnings per share grow by just under 3% for 2020. That’s not the most impressive rate of growth in the market, but Next is outperforming in a harsh environment.

On top of this, management has a history of returning any excess cash to investors via special dividends. Analysts have pencilled in a regular dividend yield of 3% for 2019. But I reckon the yield could hit 4% if the company repeats last year’s special dividends, which totalled 90p per share.

Global mining giant

My third FTSE 100 dividend pick is global mining giant BHP (LSE: BHP). This might not be the first enterprise that comes to mind when you’re looking for income plays, but over the past five years the group has transformed itself into one of the FTSE 100’s most cash generative businesses — and most of this cash is being returned to investors.

City analysts believe the company will distribute $2.08 per share in dividends this year, that works out as a dividend yield of 8.8%, according to my calculations.

Unfortunately, analysts are expecting the yield to drop back in 2020. But with a payout of $1.37 pencilled in (a dividend yield of 5.8% at current prices), I think this business still qualifies as an FTSE 100 income champion. Shares in BHP are currently dealing at a forward P/E of 12.2.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves owns shares in ITV and Next. The Motley Fool UK owns shares of and has recommended Netflix. The Motley Fool UK has recommended ITV. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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